INCOME TAX ACT, 1961

Section 145

Accounting method - Computations of profit - Trading addition - Additional income disclosed by the partner of the assessee firm

Assessee was engaged in the business of trading in MS Angels, GI Wires and Cement. During the course of survey, a statement of the partner of the assessee firm was recorded wherein he agreed to surrender additional income. Further, a trading account for the pre-survey period was prepared by the survey team and in the said trading account, Gross Profit at the rate of 4.09% was reflected. Trading account prepared by the assessee-firm and filed along with the return for entire previous year, however, reflected G.P. rate of 1.6% only. According to AO, no stock record was maintained by assessee and in absence of the same, the trading results declared by assessee were not reliable and acceptable. Difference in stock as well as purchases and sales was found during the course of survey and AO worked out the Gross Profit of the assessee by applying the GP rate of 4.09%. Held: Additional income was disclosed by the partner of the assessee firm in his statement recorded during the course of survey on account of difference in stock and difference in purchase and sales as found during the course of survey. Since this difference was directly affecting the trading results of the assessee-firm, the additional income disclosed by the assessee should have been reflected in trading account, instead of profit & loss account as done by assessee. If the said amount was credited to trading account, it gives a Gross Profit which was 3.8% of the sales declared by assessee and since the same was more than GP rate of 3.5% adopted by CIT(A), this was not a fit case to make any trading addition and trading addition made by AO and sustained by CIT(A) was liable to be deleted and accordingly, the trading addition made by AO was deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

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